It is important in any international project to ensure that the relevant contracts include provisions for the resolution of dispute. The fundamental choice is—litigation in court or arbitration? In the absence of any contrary agreement by the parties, their disputes may be heard and settled by any national court having jurisdiction over the matter and the parties. Generally, however, the parties will prefer to agree upon the resolution of disputes by arbitration.
Arbitration has certain distinct advantages over litigation, especially in an international project. The foreign litigant will fear (perhaps justifiably) that a national court may favor the local party. A national court may lack or appear to lack complete independence if one of the parties in the litigation is the government or a state entity. In contrast, international arbitrations are generally conducted in a country that is neutral vis-à-vis the parties. The arbitrators will not be the national judges of one of the parties; they will be an international panel.
One of the most important advantages of arbitration, compared to litigation, lies in international enforcement procedures. The laws governing the enforcement of court judgments are a patchwork of bilateral and multilateral agreements, with many gaps. Certain European countries have gone far in granting enforcement of each other’s court judgments, concluding the 1968 Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters. However, the United States is not a party to any such treaty.
In contrast, international arbitral awards may be enforced, inter alia, under the 1958 New York Convention. At present, 134 countries are parties to the Convention.
Arbitration may have drawbacks in the eyes of some parties. For example, the parties in an arbitration must pay certain costs that would not arise in litigation before a court—in particular, the fees and expenses of the arbitrators.
Types Of Arbitration
The factors that have been reviewed above generally lead parties in an international project to agree upon arbitration to settle their disputes. However, the parties must also determine what type of arbitration they wish to select.
Commercial arbitration may be "institutional" or "ad hoc." Well-known arbitral institutions, which administer arbitrations under rules that they have developed, include the International Chamber of Commerce ("ICC"), the London Court of International Arbitration ("LCIA"), the American Arbitration Association ("AAA"), and the International Centre for the Settlement of Investment Disputes ("ICSID"). Parties that opt for an ad hoc arbitration often agree to follow the Arbitration Rules of the United Nations Commission for International Trade Law ("UNCITRAL").
While the parties in an institutional arbitration must pay the institution’s administrative fees, the services provided by the institution generally justify this additional cost. The institution will appoint an arbitrator if a party fails or refuses to do so. The arbitrators’ fees are determined by the institution, thus relieving the parties of direct contact with the arbitrators on this delicate subject.
Issues To Consider
Parties negotiating contracts should consider issues that could arise in an eventual arbitration:
Place of Arbitration. It is advisable to stipulate the place of arbitration in the contract. Generally, it is advisable to select a country that is a party to the New York Convention, because some countries apply the Convention only on a reciprocal basis.
Discovery. Parties from different countries may find that they have very different expectations regarding discovery, the production of documents, etc. Common law discovery procedures are much more extensive than those available in civil law countries. Parties should anticipate the possibility of disputes arising over discovery in an arbitration and consider whether to address the issue in their arbitration clause.
Rules of Evidence. In practice, international arbitral tribunals and the lawyers appearing before them have developed rules of evidence that draw elements from the common law and civil law systems. For example, the civil law practice of exchanging written submissions and documents is combined with the common law practice of permitting examination and cross-examination of witnesses. Any person—whether a party or not—may testify as a witness (as in common law courts, but not all civil law courts), but rules that would exclude evidence, such as the common law’s hearsay rule, are generally not applied in arbitration.
Forms Of ADR
The desire to find quicker and more cost-effective ways of settling disputes has led to the development of many forms of alternative dispute resolution ("ADR"). Among the leading forms of ADR are the following:
Mediation. Mediation is a settlement technique in which a neutral third party acts as a facilitator to assist parties in dispute to arrive at a negotiated settlement of their dispute. The mediator’s mission may include formulating and presenting to the parties the terms of a settlement. The ICC has recently promulgated new ADR rules.
Mini-Trial. A mini-trial is an informal procedure in which the two parties to a dispute present elements of their case (documents and oral arguments) in a hearing before a neutral adviser (often a retired judge) that may last one or two days. The neutral adviser then gives a preliminary opinion, indicating how a court or tribunal might decide the case. The mini-trial is meant to give the parties a realistic idea of their prospects in a real trial or arbitration.
Expert Determination. When a dispute concerns a technical matter, the parties may wish to refer the matter to an expert or panel of experts for an opinion or decision. The parties may constitute a dispute review board, which will hear disputes and give an opinion that the parties may (or may not) accept. Alternatively, a dispute adjudication board may be established to review disputes and render decisions that will be binding upon the parties unless challenged in arbitration within a specified period of time.
These and other ADR techniques can promote rapid and relatively inexpensive resolution of disputes. They are less confrontational than litigation or arbitration, and so may facilitate the continuation of commercial relations between the parties. However, successful ADR ultimately depends upon the good faith of the parties and their willingness to compromise. Pursuing ADR may be a waste of time and money if a settlement is clearly beyond reach. If parties agree to ADR, either in their contract or after a dispute arises, their agreement should include appropriate time limits and provisions for the binding settlement of disputes if their ADR does not produce a settlement or a party does not comply with a settlement reached through the ADR procedure.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.